‘Semester One Final Examinations, 2016 ECON1010 Introductory Microeconomics Venue By THE UNIVERSITY Seat Number OF QUEENSLAND Student Number LILI WH vsti canih tone “This exam paper must not be removed rom the venue First Name School of Economics EXAMINATION Semester One Final Examinations, 2016 ECON1010 Introductory Microecono! This paper is for St Lucia Campus students. Examination Duration: 120 minutes Reading Time: 40 minutes For Examiner Use Only ‘Question Mark Exam Conditions: This is a Central Examination This is a Closed Book Examination - specified materials permitted During reading time - write only on the raugh paper provided ‘This examination paper will be released to the Library Materials Permitted In The Exam Venue: (No electronic aids are permitted e.g. laptops, phones) ‘An unmarked Bilingual dictionary is permitted ‘Any unmarked paper dictionary is permitted Calculators - Casio FX82 series or UG approved (labelled) Materials To Be Supplied To Students: Total 1 x Multiple Choice Answer Sheet Instructions To Students: Answer all questions on the Multiple Choice Answer Sheet. Total Questions: 50 Total Marks: 50 Page 1 of 19‘Semester One Final Examinations, 2016 ECON1010 Introductory Microeconomics THIS PAGE IS LEFT BLANK INTENTIONALLY Page 2 of 19‘Semester One Final Examinations, 2016 ECON1010 Introductory Microeconomics Answer each question on the Multiple Choice Answer Sheet. Each question is worth 1 mark. (50 marks total) Economists argue that perfectly competitive markets are desirable because: a) consumer surplus is greater than producer surplus. b) consumer surplus is equal to producer surplus. ©) firms will always eam economic profit. d) total surplus is maximised. 2. — Consider the following information for the local cronut store: Workers per day | Cronuts per day | Fixed cost Variable cost ($/day) (S/day) a 0 200 a 1 50 200 350 2 90 200 720 3 120 200 1080 4 140 200 1400 5 150 200 1650 J If the price is $10/cronut, how many workers should the firm hire to maximise profits? a) 1 b) 2 c) 3 d) None of the above. 3. An expectation that the price of oranges will increase in the future will cause: a) a shift to the right of the demand curve for oranges. b) a shift to the left of the demand curve for oranges. ) a shift to the left of the supply curve for oranges. d) Botha) and c). Use the following information to answer Questions 4 and 5. Lucy makes dresses and shirts during her 8-hour workday. It takes her 30 minutes to produce a shirt and 1 hour to produce a dress. At the market she can trade 1 dress for 3 shirts. 4, What is the opportunity cost for Lucy of producing shirts? a) 0.5 shirts/dress b) 0.5 dresses/shirt ¢) 2 dressesishirt d) 2 shirts/dress Page 3 of 19‘Semester One Final Examinations, 2016 ECON1010 Introductory Microeconomics 5. The maximum number of dresses Lucy can consume is and the maximum number of shirts Lucy can consume is a) 8,16 b) 12,24 ©) 24,24 d) 8,24 6. Aperfectly competitive firm faces a , whereas a monopoly faces a a) downward sloping demand curve, upward sloping supply curve b) horizontal demand curve, upward sloping supply curve ¢) horizontal demand curve, downward sloping demand curve d) multitude of buyers, single buyer 7. Which of the following is NOT true of a supply curve that satisfies the law of supply? a) Itindicates the amount producers are willing and able to sell at various prices, holding other factors constant. b) It shows how a decrease in price leads to a decrease in quantity supplied of a good. ©) Itslopes upwards to the right. d) _ Itdoes not include cost of production Use the following information to answer Questions 8 and 9. Consider to cost curves for the perfectly compet Mc /e firm below: 500 650 900 1200 G 8. _ If the market price is $40, the profit maximising quantity is: a) 500. b) 650. ©) 900. d) 1200. QUESTIONS CONTINUE OVER PAGE Page 4 of 19‘Semester One Final Examinations, 2016 ECON1010 Introductory Microeconomics 10. 1". 12, 13, Ifthe market price is $40, the profitloss for a profit maximising firm is: a) $7,200. b) $9,000. c) $16,200. d) $36,000. Which of the following is true of a Nash equilibrium involving players A and B? a) Both players must have a dominant strategy. b) Both players must have a dominated strategy. ¢) At equilibrium, total surplus is maximised. d) Given the strategies of player B, player A has chosen the highest payoff strategy. If the price for a perfectly competitive firm is less than the minimum average variable cost! a) the firm will produce where price = marginal costs. b) _ in the short run the firm will minimise loss by producing a quantity of 0. ©) _ the firm will operate in the short run and consider closure in the long run. d) None of the above. The reservation price of the supplier for a good or service is: a) _ the market price. b) the maximum amount the supplier would be willing to sell the good for. ¢) _ the minimum amount the supplier would be willing to sell the good for. d) the price determined by MB = MC. The market demand curve for apple juice in Brisbane is given by Qo = 10- P and the market supply curve is Qs = 4P where Qo and Qs are the quantity of apple juice demanded and supplied in thousands of litres (L). What is the equilibrium price and quantity for apple juice in Brisbane? a) $3.33/L and Q = 6.67L b) $3.33/L and Q = 1333.33L °) $2.00/L and Q = 8000L d) $2.00/L and Q = 1500L QUESTIONS CONTINUE OVER PAGE Page 6 of 19‘Semester One Final Examinations, 2016 ECON1010 Introductory Microeconomics 14, Consider the following graph: 15. 16. 17. Price 1203-4 quantity What is the price elasticity of demand when the price is $4/unit? a) 1 b) 0.5 c) 0.25 d) None of the above. The competitive market equilibrium quantity will be higher than the socially optimal quantity if there is: a) no externality b) a positive consumption externality. ¢) _anegative production externality. d) market equilibrium, Tea and coffee can be consumed in place of each other. An increase in the price of coffee will cause: a) a shift to the left of the demand curve for coffee. b) a shift to the left of the demand curve for tea. ©) amovement along the demand curve for tea d) a shift to the right of the demand curve for tea. A pay rise at work will cause: a) _ an increase in demand for a normal good. b) a decrease in demand for a normal good. c) adecrease in demand for an inferior good d) Both (a) and (c). QUESTIONS CONTINUE OVER PAGE Page 6 of 19‘Semester One Final Examinations, 2016 ECON1010 Introductory Microeconomics Use the following graph to answer Questions 18 and 19. 18. 19. 20. 2 Price 8 34 quantity The equilibrium price is: a) b) c) d) $2. $3. $4. $6. The consumer surplus in the market is: a) b) c) d) $3, $4. $6. $9. If monopolist employs first degree price discrimination a) consumer surplus increases and total surplus decreases. b) producer surplus decreases and dead weight loss decreases. c) consumer surplus decreases and dead weight loss decreases. d) producer surplus decreases and dead weight loss increases, The demand for cigarettes is inelastic. If the price increases by 20%, the quantity demanded will: a) decrease by more than 20%. b) increase by more than 20%. ¢) decrease by less than 20%, d) increase by less than 20%. QUESTIONS CONTINUE OVER PAGE Page 7 of 19‘Semester One Final Examinations, 2016 ECON1010 Introductory Microeconomics Use the following information to answer Questions 22 and 23. A monopolist faces the following demand curve: Qo = -12.5P + 100 with a marginal revenue curve given by MR = 8-0.16Q Assume that the marginal cost is a constant $4/unit. 22. 23. 24. 26. The profit maximising quantity for the monopolist is: a) 50units. b) 100 units. c) 25 units, d) None of the above. The monopolist should set a price: a) equal to the marginal cost. b) — $6/unit, cc) $4/unit. d) Both (a) and (c). Consider the following game: m2 A B Firm 1 [A | $4000, $4000 | $3000, $5000 B | $5000, $3000 | $3600, $3500 The payoffs are profit to the firm. The Nash equilibrium is: a) Firm 4: Aand Firm 2: B b) Firm 1: B and Firm 2: B. ¢) Firm 4: A and Firm 2: A. 4) Firm 4: B and Firm 2: A. Nick and Rosie can produce bread or milk. Rosie is a great baker and it takes her 30 minutes to produce 1 loaf of bread and 50 minutes to produce 1L of milk, Nick requires 40 minutes to produce 1 loaf of bread or 1L of milk. Which of the following statements is correct? a) _ Rosie has the absolute advantage in producing milk and the absolute advantage in producing bread. b) Rosie has a comparative advantage in producing milk and the absolute advantage in producing bread. ©) Rosie has the absolute advantage in producing bread and the comparative advantage in producing bread. d) Rosie should produce both milk and bread. Page 8 of 19‘Semester One Final Examinations, 2016 ECON1010 Introductory Microeconomics 26. 27. 28. 29. For a competitive market with a positive externality, the equilibrium price is and the equilibrium quantity is , with respect to social optimum. a) _ indeterminate, too low b) too high, too low ©) _ too low, too high d) too low, too low ‘A monopolist and perfectly competitive firm both charge a price of $10/unit. Which of the following is correct? a) The marginal cost is $10/unit for both firms. b) The marginal revenue is $10/unit for both firms. c) The marginal revenue is less than $10/unit for the monopolist and $10/unit for the perfectly competitive firm d) The marginal cost is less than $10/unit for both firms. ‘A company currently disposes toxic chemicals from production in the local lake. The pollution results in a significant reduction in productivity for the fishermen downstream. Consider the following table of the payoffs associated with the clean up of the chemical in the river. With clean up | Without clean up Gains to polluter | $1 million $3 million Gains to fishermen _| $6 million $0.25 mi in ‘Assume there are no penalties for disposing the toxic chemicals and no transaction costs. Which of the following statements is true? a) The company will clean up the river to help the fishermen. b) The fishermen can offer the company $3 million and the company will clean up the river. c) The fishermen can offer the company $4 million and the company will not clean up the river. d) The fishermen can offer the company $1 million and the company will clean up the river. If a good is non-rivalrous and non-excludable, which of the following is incorrect? a) The MC of providing an additional unit is zero. b) Consumers can obtain benefit from the good without paying for it c) Ithas no substitutes. d) Consumption of the good by one person does not diminish the availability of the good to others. QUESTIONS CONTINUE OVER PAGE Page 9 of 19‘Semester One Final Examinations, 2016 ECON1010 Introductory Microeconomics 30. The individual demand curves for a public good for Kate and Anna are MB = 10 — 2Q and MB = 20 — 4Q, respectively. The marginal cost is of the public good is MC = 15. The equation for the social marginal benefit (SMB) curve is: a) SMB b) SMB c) SMB=30-6Q d) None of the above. 31. The government imposes a price floor above the equilibrium price. This will a) reduce inefficiency in the market. b) maximise total surplus. ©) create excess supply. d) create excess demand. 32. Consider the market for a good with a negative consumption externality. The socially optimal quantity can be achieved by: a) _ imposing a tax on consumers equal to the marginal external benefit b) imposing a tax on producers equal to the marginal extemal cost. ) offering a subsidy for consumers equal to the marginal external benefit, d) allowing the competitive market to reach equilibrium, 33. The long run supply curve for a perfectly competitive market is: a) horizontal. b) equal to the minimum ATC. c) perfectly elastic, d) Allof the above, Use the following information to answer Questions 34 and 35. The market demand curve for honey is given by: Qo=12-P The market supply curve for honey is given by: Qs = 2P The government imposes a $3/unit tax on producers. 34. What is the dead weight loss (DWL)? a) $3 b) $18 °) $4 d) $3 QUESTIONS CONTINUE OVER PAGE Page 10 of 19‘Semester One Final Examinations, 2016 ECON1010 Introductory Microeconomics 35. 36. 37. 38. 39. 40. What is the tax revenue? a) $6 b) $18 c) $4 4d) $3 A country imposes a tariff on imports and the world price plus tariff is below the closed economy price. The tariff will: a) _ increase consumer surplus in the domestic market. b) _ increase producer surplus in the domestic market. ¢) increase total surplus in domestic market. d) None of the above. If both supply and demand shift to the right, which of the following is always correct? a) Equilibrium price and quantity increase. b) Equilibrium price increases. ¢) Equilibrium quantity increases. d) None of the above. ‘A market with two firms who produce goods that are close substitutes will likely be a(n): a) monopoly. b) perfectly competitive market. ¢) oligopoly. d) monopolistic market To minimise the dead weight loss, the Government should tax goods with: a) _ relatively steeper demand and supply curves. b) horizontal demand and supply curves. ) lowest cost. d) positive externalities. In a perfectly competitive market, the imposition of a price ceiling below the market ‘equilibrium price will a) create more excess supply the lower the price elasticity of supply. b) create more excess supply the greater the price elasticity of supply. ©) create more excess demand the higher the price elasticity of supply. d) create more excess demand the lower the price elasticity of supply. QUESTIONS CONTINUE OVER PAGE Page 11 of 19‘Semester One Final Examinations, 2016 ECON1010 Introductory Microeconomics aw. 42, 43. 44, 45. An increase in the price of yoghurt (an ingredient in smoothies) will cause: a) a shiftto the left of the supply curve for smoothies. b) a shift to the right of the supply curve for smoothies. ¢) a shift to the left of the demand curve for smoothies. d) Both (a) and (c). Currently, the marginal revenue to a monopolist is $5/unit and the marginal cost is $4/unit. Based on this information, the monopolist: a) is profit maximising. b) should increase quantity supplied. ©) should reduce quantity supplied d) should expect competitors to enter the market. If the demand curve shifts to the right and the price does not increase, it can be concluded that: a) demand is perfectly inelastic (horizontal curve). b) the law of demand has been violated c) supply is perfectly elastic (horizontal curve). d) _ supply is perfectly inelastic (vertical curve). A perfectly competitive firm is currently producing where price is less than the marginal cost, An economist would advise the firm to: a) change the price. b) reduce output c) increase output. d) shut down operation. ‘Suppose firms in a perfectly competitive market are making economic profits. An economist would predict that the: a) _ market price will fall as more firms enter the industry. b) market price will rise further to increase profits. c) market price will remain constant. d) market price will increase and supply will shift to the right. QUESTIONS CONTINUE OVER PAGE Page 12 of 19‘Semester One Final Examinations, 2016 ECON1010 Introductory Microeconomics 46. Consider the following table outlining the utility a consumer receives from each good at various levels of consumption Tacos Burritos ‘Quantity (tacos) | Marginal utility | Quantity (burritos) | Marginal utility 1 16 1 15 2 12 2 14 3 6 3 9 4 4 4 4 5 3 5 1 6 2 6 0 The price of burritos is $10 and the price of tacos is $5. If the budget is $30, the optimal quantity of tacos is and the optimal quantity of burritos is : a) 6,0. b) 4,1 co) 22 47. 48, 49. d) None of the above. The common feature in monopolistic competition, monopoly and oligopoly is: a) barriers to entry. b) the absence of close substitutes. c) downward sloping demand curve. 4) _ price discrimination. Ifitis possible to consume a good concurrently without reducing its value for others and to restrict use of the good to payers only, the good is a(n): a) _ pure public good b) impure public good. ©) _ perfectly competitive good. d) private good The consumption of a good has a positive externality of $20 associated with it. Would a $25/unit subsidy for consumers solve the problem caused by the externality? a) Yes, because the subsidy is greater than the marginal external benefit b) Yes, because it will cause an increase in demand. ¢) No, because it will increase the quantity to above the socially optimal quantity d) No, because subsidies only shift supply. QUESTIONS CONTINUE OVER PAGE Page 13 of 19‘Semester One Final Examinations, 2016 ECON1010 Introductory Microeconomics 50. If a monopolist faces a linear demand curve, the marginal revenue curve: a) isnot linear. b) lies above the demand curve, ¢) _ lies below the demand curve. ) intersects the demand curve at a point where it is inelastic. END OF EXAMINATION Page 14 of 19‘Semester One Final Examinations, 2016 ECON1010 Introductory Microeconomics WORKING SPACE — THIS SPACE IS FOR WORKING ONLY AND WILL NOT BE MARKED Page 15 of 19‘Semester One Final Examinations, 2016 ECON1010 Introductory Microeconomics WORKING SPACE — THIS SPACE IS FOR WORKING ONLY AND WILL NOT BE MARKED Page 16 of 19‘Semester One Final Examinations, 2016 ECON1010 Introductory Microeconomics WORKING SPACE — THIS SPACE IS FOR WORKING ONLY AND WILL NOT BE MARKED Page 17 of 19‘Semester One Final Examinations, 2016 ECON1010 Introductory Microeconomics WORKING SPACE — THIS SPACE IS FOR WORKING ONLY AND WILL NOT BE MARKED Page 18 of 19‘Semester One Final Examinations, 2016 ECON1010 Introductory Microeconomics WORKING SPACE — THIS SPACE IS FOR WORKING ONLY AND WILL NOT BE MARKED Page 19 of 19